RMB Holdings and its twin RMI Holdings have an impeccable record of spotting the Next Big Thing. RMB holds a one-third stake of First Rand, and RMI owns a decent wedge of Discovery, MMI, and Outsurance. Outsurance was a hugely disruptive entrant into the vehicle and household insurance market, and Discovery shook up the medical schemes industry and the investment industry in its time. According to RMI and RMB CEO Peter Cooper, RMI is on the lookout for a fourth pillar – another industry-shaking financial services company that will make the country sit up and take note.
It’s hard to imagine what this new company will be. If I’m speculating wildly, I would say a disruptive banking company like Capitec might make some sense (although there are risks associated with unsecured lending), or perhaps something in the asset financing sector – an innovative car loan or home loan provider perhaps? – FD
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GUGULETHU MFUPHI:  Rand Merchant Insurance, a separately listed investment holding company has posted strong positive growth in their half-year normalised earnings. The company says that the Growth in new insurance business volumes will continue to be dependent on recovery in employment. Joining us now on the line for more is Peter Cooper. He is the Chief Executive of RMI and RMB Holdings – maybe the outgoing executive. Peter, do tell us what you’ll be doing once you do decide to step down from the organisation.
PETER COOPER:  Good afternoon. I will continue. What is anticipated is that I will continue in a non-executive capacity with the Group companies, RMI, RMH, and some of the investments as well, but I’m beginning to see that there’s a whole world of exciting things, which will take up all of the free time I generate by not having to come to the office at 6:00am.
ALEC HOGG: Yes, they’re bringing Herman in – Herman Bosman – former RMB and of course, better known as the Chief Executive of Deutsche Bank. That’s quite a coup.
PETER COOPER:  We’re very happy to have him back. He joins us at the end of this month. He’s counting the nights until he starts with us again. Obviously, I’m counting the days with a different perspective, but we’re very happy to have him. We know him well. He knows our work style. He acted as advisor to people, like Discovery, in the past so he’s a good person to have at the centre with the market perspective – and how the market sees our investments, as well.
ALEC HOGG: He’s 45, Peter. That’s a little younger than you are…a little younger than I am too. Is he being brought in to perhaps take the Group in a different direction? The two companies have a market cap of over one hundred billion Rand now.
@alechogg they're backing a talented banker with a proven track record #succession
— Zenzo L (@ZenzoLusengo) March 6, 2014
PETER COOPER:  I think what makes Herman’s position attractive at the moment is we are hoping we can build a portfolio, what we’ve referred to in the Group as the fourth pillar next to Discovery, MMI, and Outsurance. Something new will be built within the insurance group. Invariably, when you start new things – Discovery was started 20 years ago. Outsurance was started 12 years ago – they have a five-to-ten year time horizon before you start to see the value of those investments. Herman has time horizon that’s 5/10/15 years into the future, so we’re very happy that we have somebody that has a time horizon, which will match the investments that we’re going to be making.
ALEC HOGG:Â Have you signalled yet what that fourth pillar might be?
PETER COOPER:  It’s the Holy Grail. The closest we’ve come to defining it is… Laurie uses the phrase. He says ‘what Herman should be looking for are the things that could blindside the big investments, the new things in the future that we really can’t readily identify now’. The Doubting Thomas’s would say ‘that’s not possible’ except that in the last 20 years we’ve achieved it. Discovery blindsided the main investments in the industry they went into. Outsurance certainly also blindsided the industry they entered into, so we remain optimistic that Herman will find the right investments for us. It’s likely to be financial services or allied to financial services but I think we’re at an exciting point at the moment.
ALEC HOGG: Big job… Your RMH today, disclosed a 52 percent increase in the dividend to 100 cents per share; that’s after the earnings were up by half as much. That’s a big jump, Peter. What is that telling us?
PETER COOPER:  Yes, what I think you should bear in mind… Both FirstRand and ourselves put a health warning: in the case of FirstRand with a 40 percent increase in the dividend, and in our case a 50 percent increase – and it’s really to say that it’s the tail end of the change in the dividend cover, which FirstRand implemented last year. You’ll remember they brought their dividend cover down from about two-point-two to two times and that increased the dividend quite sharply in the year. In the base, we still have the interim dividend – the old level, which means that we have a big step-up to get to the new dividend cover level, but we warned everybody. I think shareholders should be aware that the dividend growth for the full year, if you take the interim and the final dividend together, is likely to track the growth in underlying normalised earnings. The 50 percent is really just the confidence of saying the second six months will be good, but over time you have to accept that the dividend will track the rate of growth that we have in earnings.
ALEC HOGG: And that intrinsic value of yours, of R47.75: it’s most unusual to see an investment holding company that trades so close to its intrinsic value. There’s virtually no discount between your price and that underlying value, whereas if you look at something like Remgro or even Reinet, it has a much bigger discount. Is it because you’re undervaluing the intrinsic value?
PETER COOPER:  Remember, in the case of RMH especially, the intrinsic value is the look-through value of the FirstRand shares. In other words, it’s the market value of the FirstRand shares. I think it can be ascribed to two factors (and with a smile, I’ll give you a third one). The two factors are… Basically, there’s very little slippage at the centre. We run a very small operation, so until now with Herman joining us, we’ll have three people at RMH. Ione is a half-day person in the CEO and at RMI, we have a similar staff complement of three people, so there’s very little classical head office slippage. The other side is we can take the structures apart without any structural costs, so if we were ever to decide to unbundle FirstRand for instance, or unbundle one of the investments in RMI, we can do that without any cost and without any capital gains. As a result, what the shareholder really sees in the underlying value is the asset. The reason why it should be trading at par or a small premium to it is we are dinosaurs, and we believe that the size of the investment has value as well. To own 35 percent or 34 percent of FirstRand, it must have a value somewhere in the calculation of what one can do with that stake or the role that you would play if somebody else would find the stake desirable. The final one is obviously, the quality of the outgoing management.
ALEC HOGG: Peter, well done…you had to throw that one in. Well, hopefully it’s not the last time we talk to you.
